Friday, September 28, 2012

High Court Dismisses Insurer’s Suit Against Margolis Edelstein

Just weeks after hearing oral arguments in the case, the state Supreme Court has dismissed as being improvidently granted an appeal by an insurance company that wanted its lawyers to pay the $5 million the company paid to settle a case.

The court in Ingerman Affordable Housing v. Margolis Edelstein didn’t offer an explanation in its one-line order Friday for why it dismissed the case.

The state's six sitting Supreme Court justices were asked to decide whether an insurance company that settled for $5 million when it felt the insured's lawyer was badly losing a case could then sue the lawyer for malpractice even though he ultimately secured a defense verdict.

Attorney Clifford E. Haines told the justices at oral argument that the lower courts defied logic in finding his client, Ohio Casualty Insurance Co., had no damages against defense lawyer Walter J. Timby III and his firm, Margolis Edelstein, to present to a jury given the defense verdict against Ohio's insured. Haines pointed to the $5 million Ohio paid to settle personal injury claims against its insureds, Ingerman Construction and other related entities.

Haines argued the lower courts' rulings granting and upholding summary judgment in favor of Timby and Margolis Edelstein essentially give insurance defense lawyers a free pass on malpractice liability if their clients settle based on separate counsel's advice that the defense lawyer has put the insured at risk of liability.

Timby and Margolis Edelstein, through lawyer George M. Vinci Jr. of Spector Gadon & Rosen, argued on the other hand that legal malpractice claims require a plaintiff prove the "case within the case," and be able to show that the plaintiff would have won the underlying issue but for the lawyer's malpractice. In this case, Vinci noted, Ingerman Construction was found not liable when a jury returned a $7 million verdict against another defendant.

He argued it was Ohio's choice, based on advice from counsel at Post & Schell, to settle the case after several other defendants settled. That decision was made, Vinci said, after Shanin Specter of Kline & Specter told Ingerman Construction that he would target the company now that the other defendants had settled.

Even more importantly, Vinci argued, was that Ohio admittedly was acting in this lawsuit under the assigned rights of Ingerman Construction. When a party in Pennsylvania is an assignee of a claim, they are standing in the shoes of the party that assigned that claim — in this case, Ingerman Construction. The problem, Vinci said, is that Ingerman Construction suffered no damages, paid no money out of its own pocket and was found not liable by a jury. Therefore, Ingerman Construction had no claim to assign and Ohio has no damages to assert, he argued.

The "absurdity" of the entire case, Vinci said, is highlighted by the fact that Brad Ingerman, owner of the various Ingerman entities, testified at his deposition that his company did not sustain or pay any damages and that Margolis Edelstein gave competent representation.

But what Haines argued, and the dissenting judge at the Superior Court said in his opinion, was that Ohio never would have paid those damages had it not been fearful of significant liability beyond its $5 million excess insurance policy. Ohio settled, Haines said, because of the alleged missteps by Timby and the fact that the defendants in the underlying suit were up against one of the best personal injury lawyers in the county known for getting verdicts upward of $100 million.

Haines also noted that Ingerman Construction faced significant exposure after the other defendants settled.